Diminishing Pensions For Steel Workers in the UK
Tata Steel workers in the UK are at risk of losing a significant portion of their pensions due to some drastic changes being considered at the moment. The UK government and Tata Steel executives are discussing reduced pension options in order to save jobs and save their workers pensions. Workers have begun protesting in the streets of London urging the government and Tata Steel to save their jobs and their right to a comfortable retirement. At this time the government and Tata Steel do not appear to be looking into other options. Here is a breakdown of the options they are discussing at the moment.
Pension Protection Plan
The Pension Protection plan was created in order to save folks their promised retirement pensions. Basically, the plan enforces a buyout option for the employer in which the government will accept the loss of ability to fully pay their employees their pension and ask that they pay a smaller amount instead. In this instance Tata Steel currently owes their employees about 15 billion pounds in pension funds. Yet, the company is struggling to fulfill these accounts. Last year Tata Steel was in a retirement fund deficit of about 484 million pounds. This year the number skyrocketed to over 700 million pounds being kept from their loyal workers. According to the Pension Protection Plan, it would cost the government 7.5 billion pounds to buy out Tata’s pension plans, resulting in an enormous 7.5 pound dollar cut to their employees pensions. Of course, the Pension Protection Plan is one option that the government would rather avoid.
Reduce Pension Payouts
The current, and most likely, scenario includes dropping the amount of money Tata will pay into their employees pension accounts. As of right now, the company has about 11,000 employees worldwide, which equates to the 15 billion pounds in pension payouts we discussed above. Due to the present income shortage that Tata Steel is experiencing, they plan to modify their pension benefits being offered. The company has not stated exactly how much of a cut they are planning on making to employees pensions. Although, according to their newfound shortcomings it looks like employees retirement accounts will take quite the hit. The most information given forth by the company is that in their opinion their fund cuts will be preferable to the alternative option, implementation of the Pension Protection Plan.
1995 Pension Act
One interesting tidbit to note is the fact that in the UK a bill was passed back in 1995, called the Pension Act, that disallows companies from making such changes to their pension plans. However, after speaking with government officials, the terms are still being considered. One such official overlooking this case, Sajid Javid, has stated, “The scheme’s trustees have come forward and asked us to look at current legislation” and “The scheme trustees have put forward this proposal and it is only right that we consider it”.
This type of change is undoubtedly shocking for Tata Steel workers and onlookers alike. Tata Steel has been a UK staple within the economy, providing steady work and good benefits since 1907. If a company such as this can fall victim to such a devastating change, what does this mean for other well established companies around the world? Many folks believe that the best option lies within private savings accounts and even offshore accounts. Saving funds this way guarantees a happy retirement after many years of dedicated and tireless working.
However, this isn’t a perfect option either. Folks choosing to withdraw their retirement funds and transfer them into secure accounts may face serious tax penalties to do so. In addition, company matched pension deposits can no longer be accrued when using this method. For the time being, it seems that workers may have to suffer a detriment to their pensions no matter where they turn.